In recent months, most American companies have focused on China,
now the world's biggest recipient of foreign investment. Those
looking elsewhere have considered Southeast Asia and Iraq, where
U.S. firms will be rebuilding the country. But these entrepreneurs
are overlooking a potentially better market: the 10 nations of
central and eastern Europe that will join the European Union (EU)
in May.

The new EU 10-Cyprus, the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and
Slovenia-doesn't provide manual labor as cheaply as
China, but they do have more educated work forces that are less
expensive than in western Europe or the United States; wages in
most industries are more than 25 percent less than they would be in
a western European country. "There is an extremely high [level
of skilled] labor," says Lindsay Lloyd, regional program
director for Europe at the International Republican Institute, a
think tank in Washington, DC. Joel Ranck, a PR entrepreneur who has
worked extensively in eastern Europe, says the Czech Republic's
labor force has become so skilled in English that it now competes
with Ireland for call-center jobs. What's more, once the EU 10
officially become member states, companies will be able to move
goods across their borders and into older EU member states with
essentially no customs controls or charges. (The countries will not
start using the euro common currency in 2004, however.) Most of the
10 EU nations have also posted strong economic growth rates
recently, signs they are solid long-term bets.

The new EU 10 is aggressively wooing foreign entrepreneurs; many
of the nations have pursued tough-minded programs of economic
reform and privatization, making it easy for foreign businesses to
succeed. "When countries join the EU, they become part of
what's designed to be a level playing field," says Simon
Anholt, an advisor to the British government. "Competition
[among member states] is tough, and they have to differentiate
themselves." Trying to rise above the pack, Slovakia has
slashed its taxes on corporate profits; today, firms in Slovakia
are taxed at a flat rate of only 19 percent. According to the
"2004 Index of Economic Freedom" report by The Heritage
Foundation, a Washington, DC, think tank, Poland has created
"deep structural change" in its economy, opening it up to
free market competition. And Lithuania has cut taxes and red tape
in small-business sectors.

Many nations also give foreign companies lucrative incentives.
In the Czech Republic, for example, foreign companies receive
corporate tax relief for up to 10 years, while Slovenia has held a
whole series of conferences, meetings and road shows designed to
showcase the country's positive investment environment.

But hurdles remain. "The EU accession countries were like
kids dreaming of being rock stars, and now suddenly they're
being pushed on stage," Anholt says. Corruption and graft is
still a bigger problem in eastern Europe's business environment
than in western Europe, and legal systems are weak. But as a 2003
report by Transparency International, a global graft-fighting
organization, notes, joining the EU will force these countries to
improve their legal systems, since they'll have to adopt
EU-standardized judicial norms.

"The benefits eastern European countries will have [over
China] will be that they're in the Union. That makes them
secure" in terms of contracts and patents, says Desmond
Lachman, specialist in emerging markets at the American Enterprise
Institute for Public Policy Research, a think tank in Washington,
DC.

Still, the EU 10's attractiveness shines through: The United
Nations Conference on Trade and Development estimates that nearly
$30 billion in foreign investment would enter the region in 2003.
The Czech Republic, one of the region's best bets for foreign
companies because of its highly educated workers, has become known
as "Hollywood East" because it has lured many foreign
film companies. Estonia, another good bet that has posted some of
the region's strongest economic growth, was recently called the
International Monetary Fund's "star pupil" for the
way it has opened its economy. Poland, the largest of the new EU 10
and the biggest market for foreign companies, has begun slashing
its budget deficit. That makes it likely to be one of the first of
the 10 to be able to use the euro, which will make it even easier
for investors to operate there. Who needs China, anyway?